In wake of Bitcoin spike, Instawallet halts service and Mt. Gox “eats” DDOS

Instawallet will reimburse accounts with less than 50 BTC—good luck if you're over.

Two days after Bitcoin blasted through its all-time price—shooting past $100 per BTC—Instawallet, one of the digital currency's easiest-to-use wallet sites, has shut down indefinitely. Bitcoin’s price peaked at around $140 late Tuesday but has since fallen back down. It’s hovering around $128 at present.

Meanwhile, Mt. Gox, the world’s largest bitcoin-trading site, wrote on Twitter Wednesday afternoon that it’s been experiencing a distributed denial of service (DDoS) attack. “Can confirm we are eating ddos right now, and for some reason Prolexic didn't block it,” the company noted.

Instawallet branded itself as an “anonymous” Bitcoin wallet site. It created a randomly generated account number every time the site was updated. That made it very easy for Bitcoin users to store their online cash, but it also apparently made it easy for hackers to disrupt the system. The problem was first brought to light on Monday.

“The Instawallet service is suspended indefinitely until we are able to develop an alternative architecture,” the service wrote on its site. “Our database was fraudulently accessed, due to the very nature of Instawallet it is impossible to reopen the service as-is.”

Instawallet did not immediately respond to Ars’ request for comment.

The website, which appears to be run from France, said that it will “accept claims for individual Instawallets” and will refund balances under 50 BTC (around $6,400 at current exchange rates).

“Claims for wallets that hold a balance greater than 50 BTC will be processed on a case by case and best efforts basis,” it said.

That's the strange thing about bitcoins: There's literally nothing to back them up. Forget gold, there's no country, no GDP, no nothing backing them up. Talk about risk and recipe for abuse. But that they're as popular as they are screams they're filling an unmet need.

The lesson here being don't store you bitcoins in an online wallet. Yes, they are convenient, but you have no control. If you're not planning on using them anytime soon, store your bitcoins locally on your own machine, and preferably offline.

That's the strange thing about bitcoins: There's literally nothing to back them up. Forget gold, there's no country, no GDP, no nothing backing them up. Talk about risk and recipe for abuse. But that they're as popular as they are screams they're filling an unmet need.

If that unmet need is one for risky investment opportunities easily accessible to nerds who otherwise wouldn't bother with currency markets, filling it is not necessarily a good thing.

I am so glad big bank and big ebil guberment cant track my purchases I much rather have some Eastern European Crime Syndicate just take my money which I can do little to prove I had.

Fortunately we are free to keep the bitcoins in our own possession and not let anybody else access it.

mikiev wrote:

Corbenman wrote:

... or a backup currency for troublesome times is to be seen.

Which is the part that eludes me.

If I have some "BTC" on an exchange somewhere - or even on my own computer - how will I be able to exchange them for goods & services if the infrastructure is down, or at least degraded?

If markets collapse, how am I going to trade BTC for food & water?

e.g. "I'll trade you a couple of these cryptographically-unique numbers for a chicken and a can of peas."

All of the problems you are describing also apply to the US dollar and the Euro dollar and any other currency in the world.

Bitcoin is no worse than any of them, in some ways it is better. For example some island off europe recently had their banks close for a couple of weeks, leaving the entire country with no money except for whatever cash they happened to have in their pocket. With bitcoin, there is no bank that can close, you hold the money yourself (unless you choose to give it all to someone else).

If I want to buy something with my credit card, Visa has to approve it first. If I want to buy something with bitcoins, nobody has to approve anything.

The only issue is it's new and still moving around a lot. Be interesting to see where it ends up once it settles down.

If I have some "BTC" on an exchange somewhere - or even on my own computer - how will I be able to exchange them for goods & services if the infrastructure is down, or at least degraded?

If markets collapse, how am I going to trade BTC for food & water?

e.g. "I'll trade you a couple of these cryptographically-unique numbers for a chicken and a can of peas."

It's funny how BTC fanbois who have a vested interest in mining those BTCs (and even those who don't) tend to clam up when presented with such scenarios or launch into defensive gibberish comparing it to how "fiat" money works.

I think it's a mistake to think of Bitcoins as a currency. They're more like a trade-able commodity, such as first edition comics, baseball trading cards or antiques, only more fungible.

Someone commented that unlike a currency they're nothing behind them to give them value, nothing to back them up. What they do have, in common with the other trade-ables I mentioned, is rarity, established by the initial mining process.

If you've ever watched something like Antiques Roadshow, you'll see some old, cracked crockery plate with decoration that looks like it was finger painted by a four year old, being valued at tens of thousands of pounds. The reason is it was made in the fourteenth or fifteenth century.

As a functional item the plate has little real value of it's own, it's only the rare nature of this and similar items that allows people to see them as having value and exchanging real money for them. That, and the perceived need for a method of exchange outside the immediate control of governments.

I have to wonder if the DDoS attacks are coming from big bank lackeys. I hope they figure out who it's coming from. It would be nice for people who've lost lots of money to know who caused it and uh... know where to find them. [evil grin] >:)

My personal evaluation of Bitcoin is it is still very new, and except for the miners, most of the services built on it are somewhat amateur. The people with real experience in building these services don't largely overlap with the enthusiasts who are building them.

Bitcoin should not be seen as an investment, unless you truly have money you can just throw away, and everything purchased through Bitcoins are determined by the exchange rate to local currency, not anything intrinsic. It's better used like a temporary medium for exchange right now.

I think it's a mistake to think of Bitcoins as a currency. They're more like a trade-able commodity, such as first edition comics, baseball trading cards or antiques, only more fungible.

Someone commented that unlike a currency they're nothing behind them to give them value, nothing to back them up. What they do have, in common with the other trade-ables I mentioned, is rarity, established by the initial mining process.

Excellently said. It might also be noted that unlike a currency, Bitcoins don't have a mostly-competent central bank enacting mechanisms to stabilize their value.

Despite what the Neal Stephenson fans think, government control isn't always a bad thing.

I have to wonder if the DDoS attacks are coming from big bank lackeys. I hope they figure out who it's coming from. It would be nice for people who've lost lots of money to know who caused it and uh... know where to find them. [evil grin] >:)

Right because they care about something that is worth less then 1.5 billion. Bitcoins are in no way a threat to banks seeing as how banks have FDIC insurance. Oh and if they wanted to destroy Bitcoins they would send some of the proprietary Forex trading tools and a 100k dollars and kill the market before lunch. A half million and they would destroy it in less then an hour.

“Claims for wallets that hold a balance greater than 50 BTC will be processed on a case by case and best efforts basis,”

Hmm. Suddenly shut down the service, and for accounts with large amounts of cash, "We'll get back to you." I know a few people on EVE Online who got rich that way...

EVE bank scams just shut the whole thing down with no notice and run off with all the deposits. this is more like Cyprus where the bank realizes it's fucked and decides to rob depositor accounts larger than some arbitrary limit to cover its own debts (which will likely cause a massive bank run as everyone tries to get their money out before it gets stolen too)

[All of the problems you are describing also apply to the US dollar and the Euro dollar and any other currency in the world.

Bitcoin is no worse than any of them, in some ways it is better. For example some island off europe recently had their banks close for a couple of weeks, leaving the entire country with no money except for whatever cash they happened to have in their pocket. With bitcoin, there is no bank that can close, you hold the money yourself (unless you choose to give it all to someone else).

Cyprus. It was in the news a lot.

And what happened in Cyprus could happen with Bitcoins; it had to do with keeping money in banks, but not with the particular type of currency kept in the bank. People who kept cash or had their money in different banks weren't affected.

Quote:

If I want to buy something with my credit card, Visa has to approve it first. If I want to buy something with bitcoins, nobody has to approve anything.

That shows how Bitcoin is an improvement over Visa, not over currency per se. If I want to pay cash for something, no one has to approve anything.

Quote:

The only issue is it's new and still moving around a lot. Be interesting to see where it ends up once it settles down.

“Claims for wallets that hold a balance greater than 50 BTC will be processed on a case by case and best efforts basis,”

Hmm. Suddenly shut down the service, and for accounts with large amounts of cash, "We'll get back to you." I know a few people on EVE Online who got rich that way...

EVE bank scams just shut the whole thing down with no notice and run off with all the deposits. this is more like Cyprus where the bank realizes it's fucked and decides to rob depositor accounts larger than some arbitrary limit to cover its own debts (which will likely cause a massive bank run as everyone tries to get their money out before it gets stolen too)

Well the slight difference is if you have a bank deposit in the EU you have a 100k Euro insurance against any losses. Even the Cyprus bailout protects the first 100k. While I believe the bailout is bad policy especially for the rest of the what are we at now fat pigs and capital controls are harsh they still have their first 100k Euros. You lose your bitcoin wallet like this and you have no guarantee at all you will ever see that "money" again.

If I have some "BTC" on an exchange somewhere - or even on my own computer - how will I be able to exchange them for goods & services if the infrastructure is down, or at least degraded?

If markets collapse, how am I going to trade BTC for food & water?

e.g. "I'll trade you a couple of these cryptographically-unique numbers for a chicken and a can of peas."

It's funny how BTC fanbois who have a vested interest in mining those BTCs (and even those who don't) tend to clam up when presented with such scenarios or launch into defensive gibberish comparing it to how "fiat" money works.

How is this any different to your Visa card? If any of the infrastructure for visa goes down you can't use it until it comes back up.

Bitcoins are more resilient though because there is no single point of failure to DDoS to bring it down. Even if the exchanges are down people can still exchange bitcoins from one wallet to another. That's the point of P2P, the collaborating nodes make up the network, similar to how you can't just hammer one bit of the Internet to make it die.

Exchanges are about swapping BTC for USD etc, they have nothing to do with moving bitcoins from one wallet to another.

That's the strange thing about bitcoins: There's literally nothing to back them up. Forget gold, there's no country, no GDP, no nothing backing them up. Talk about risk and recipe for abuse. But that they're as popular as they are screams they're filling an unmet need.

The US dollar isn't backed up by anything but the perceived security of the US economy. Its called fiat money.

One could argue that Bitcoins are better able to retain their value than the US dollar as their growth rate is limited by their very nature whereas the US could print as many dollars as they want. Not to mention there is no way currently to forge a bitcoin, the same cannot be said for US dollars.

Bitcoin is no worse than any of them, in some ways it is better. For example some island off europe recently had their banks close for a couple of weeks, leaving the entire country with no money except for whatever cash they happened to have in their pocket. With bitcoin, there is no bank that can close, you hold the money yourself (unless you choose to give it all to someone else).

If I want to buy something with my credit card, Visa has to approve it first. If I want to buy something with bitcoins, nobody has to approve anything.

The only issue is it's new and still moving around a lot. Be interesting to see where it ends up once it settles down.

LOL. Paper cash provides the same service. But there's reasons people leave their money in banks.

Furthemore, if banks do start accepting Bitcoin-denominated accounts, there's nothing about Bitcoin that will save you from the bank going out of business.

Your Visa example is also ridiculous. Visa just verifies that you have the credit to buy the thing. Bitcoin just verifies that you have the actual money to buy the thing.

In other words, you haven't solved any problem you've just identified by using Bitcoin.

If I have some "BTC" on an exchange somewhere - or even on my own computer - how will I be able to exchange them for goods & services if the infrastructure is down, or at least degraded?

If markets collapse, how am I going to trade BTC for food & water?

e.g. "I'll trade you a couple of these cryptographically-unique numbers for a chicken and a can of peas."

If the "infrastructure" is down (meaning no electricity, or internet) then you're just as screwed with dollars as you'd be with bitcoins. You think you're going to be able to make cash withdrawals when your bank is offline?

Bitcoin's "infrastructure" is massively distributed. Nothing short of the entire Internet going down all at once will take it down.

I would be very suspicious of this sudden rise in the value of bitcoins. There are about 9 1/2 million bitcoins out there. At $100 per bitcoin, you're talking about a total world capitalization of less than a billion dollars. Considering how slow bitcoins circulate through the economic system (and almost all trades are investment trades, someone with less than $100,000 could easily manipulate the bitcoin market.

Even worse, there's absolutely no way to even tell since bitcoin transactions are completely anonymous. In fact, the rise in the value of bitcoins could even come from someone simply buying bitcoins they already own.

The lesson here being don't store you bitcoins in an online wallet. Yes, they are convenient, but you have no control. If you're not planning on using them anytime soon, store your bitcoins locally on your own machine, and preferably offline.

Yep ... just like "real" money in a bank. When the bank goes bankrupt, you receive only what the bankruptcy trustee decides to give you. If you are lucky the bank was insured by a company that guarantees that the difference between what the trustee thinks you should get and your actual balance will be returned to you so that you don't lose anything. Unfortunately for big depositors in the last round of bank crashes the real world insurance has a cap and they lost a lot of money.

Then there is the recent bank panic in Cyprus where the EU asked Cyprus to "tax" bank accounts by removing 30% of the balance.

InstaWallet was an uninsured bank that happened to maintain BTC balances. They decided to go out of business and depositors will be able to reclaim whatever InstaWallet decides is a fair share of the cash on hand. How much was actually stolen by the hackers & how much will be paid to the staff for the hard work they are putting in to make sure everything is properly wrapped up will affect the actual amounts returned.

The lesson that is being taught is never trust a bank that is not required by law to return money to the depositors on request or at whatever date is specified in the agreement the depositor signed. Storing money in an uninsured bank is a great way to lose money.

PayPal is the "real" money equivalent of InstaWallet. The best protection you have with PayPal is simply that their ongoing income in fees greatly exceeds the amount they could earn by shutting down and walking away with the money in the accounts.(This is why I maintain a $0 PayPal balance and use the insta-check or debit card draft when using PayPal to make a payment. I also check the account daily and move any cash balance to an insured bank account.)

If I have some "BTC" on an exchange somewhere - or even on my own computer - how will I be able to exchange them for goods & services if the infrastructure is down, or at least degraded?

If markets collapse, how am I going to trade BTC for food & water?

e.g. "I'll trade you a couple of these cryptographically-unique numbers for a chicken and a can of peas."

It's funny how BTC fanbois who have a vested interest in mining those BTCs (and even those who don't) tend to clam up when presented with such scenarios or launch into defensive gibberish comparing it to how "fiat" money works.

How is this any different to your Visa card? If any of the infrastructure for visa goes down you can't use it until it comes back up.

Bitcoins are more resilient though because there is no single point of failure to DDoS to bring it down. Even if the exchanges are down people can still exchange bitcoins from one wallet to another. That's the point of P2P, the collaborating nodes make up the network, similar to how you can't just hammer one bit of the Internet to make it die.

Exchanges are about swapping BTC for USD etc, they have nothing to do with moving bitcoins from one wallet to another.

You don't need exchanges to change BTC to USD or vice versa. If you are buying BTC, find someone who is willing to sell them for dollars. If you are selling BTC, find someone who is willing to buy them for dollars. The big exchanges are currency exchange markets where you can post your offers to buy or sell rather than contacting individuals. There is a large number of private money changers that are flying under the radar buying and selling BTC and many other currencies with no assistance from the big exchanges other than referencing them to keep track of the market price of the currencies they are dealing in.

It's funny how BTC fanbois who have a vested interest in mining those BTCs (and even those who don't) tend to clam up when presented with such scenarios or launch into defensive gibberish comparing it to how "fiat" money works.

The problems in this article have nothing to do with the BTC protocol or network, but are issues with companies attempting to provide some sort of service in BTC. Those companies are susceptible to all the same failure modes of any other company using "fiat" currency. Failures like this are merely a roadbump, and an opportunity to create better business model's and spurn demand for better BTC consumer protection.